This quiz works best with JavaScript enabled. Home > Corporate Finance > Capital Budgeting > Capital Budgeting – Quiz 3 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Capital Budgeting Quiz 3 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. The minimum level of cash inflow necessary for a project to be acceptable is: A) NPV < $ 0. B) ANPV > $ 0. C) NPV > $ 0. D) ANPV < $ 0. Show Answer Correct Answer: C) NPV > $ 0. 2. Which of the following expenditures is not considered a capital investment? A) Building construction costs. B) Cost of buying a new machine. C) Research and Development Costs. D) Machine installation costs. Show Answer Correct Answer: C) Research and Development Costs. 3. The interest rate used to find the present value of a future cash flow is the A) Prime rate. B) Discount rate. C) Cutoff rate. D) Internal rate of return. Show Answer Correct Answer: B) Discount rate. 4. Investment for Equipment Replacement is also called A) Non Profit Investment. B) Non Measurable Profit Investment. C) Expansion Investment. D) Replacement Investment. Show Answer Correct Answer: D) Replacement Investment. 5. What is not an Investment Valuation Criteria A) Payback Method. B) Present Tenses. C) Discounted Cash Flows. D) Average Return On Investment. Show Answer Correct Answer: B) Present Tenses. 6. The strength of the Profitability Index concept is A) Requires estimate of cost of capital. B) May not give value-maximizing decisions for mutually exclusive projects. C) Provides only relative profitability. D) Tells whether firm value is increased. Show Answer Correct Answer: D) Tells whether firm value is increased. 7. Determine the payback period for a RM20, 000 project that is expected to return RM6, 000 for the first two years and RM3, 000 for years 3 through 5. A) 3.5 years. B) 4.5 years. C) 4.67 years. D) 5 years. Show Answer Correct Answer: C) 4.67 years. 8. A set of projects in which the acceptance of one project means that the others cannot be accepted A) Replacement Decision. B) Expansion Decision. C) Independent Projects. D) Mutually Exclusive Projects. Show Answer Correct Answer: D) Mutually Exclusive Projects. 9. Although it ignores the time value of money, what is the most common method used in practice for capital budgeting? A) Internal rate of return. B) Net present value. C) Payback. D) Accounting rate of return. Show Answer Correct Answer: C) Payback. 10. Which of the following adjustments should NOT be made when computing free cash flow from Incremental earnings? A) Adding depreciation. B) Adding all non-cash expenses. C) Subtracting increases in Net Working Capital. D) Subtracting depreciation expenses from taxable earnings. Show Answer Correct Answer: D) Subtracting depreciation expenses from taxable earnings. 11. Full name of the acronym IRR A) Internal Returning of Rate. B) Internal Return of Rate. C) Internal Rating of Return. D) Internal Rate of Return. Show Answer Correct Answer: D) Internal Rate of Return. 12. The after-tax net present value of a project is affected by A) Tax-deductible cash flows. B) Non-tax-deductible cash flows. C) Accounting accruals. D) All of the above. Show Answer Correct Answer: D) All of the above. 13. Which of the following is not an element of Capital? A) Saham / Equity. B) Account ReceivableSurat. C) Debt/Bond. D) Loans to Banks. Show Answer Correct Answer: B) Account ReceivableSurat. 14. The Mie Aceh Sigli restaurant was quite busy with customers, so the owner decided to rent another shop next to the shop currently occupied. This decision includes the type of investment A) New Product. B) Replacement. C) Exploration. D) Expansion. Show Answer Correct Answer: D) Expansion. 15. The weakness of the Payback Method is one of them A) Does not take into account the time value of money. B) It is quite simple to choose investment proposals. C) Can be used to value two investment projects. D) None of above. Show Answer Correct Answer: A) Does not take into account the time value of money. 16. This is a form of analysis defined by calculating how long it will take for the asset to "earn back" the money you invested in purchasing it. A) Internal rate of return. B) Net present value. C) Payback method analysis. D) Tax accounting. Show Answer Correct Answer: C) Payback method analysis. 17. The present value of an asset's future cash flows equal its initial outlay A) Internal Rate of Return. B) Payback. C) Net Present Value. D) Modified Internal Rate of Return. Show Answer Correct Answer: A) Internal Rate of Return. 18. Potential problems in using the IRR as a capital budgeting technique include A) The timing problem. B) Multiple IRRs. C) The scale problem. D) All of the above. Show Answer Correct Answer: D) All of the above. 19. The following is NOT a principle to consider when calculating cash flows for NPV & IRR A) The final cash flows must be after-tax. B) Include all opportunity costs. C) Ignore allocated costs. D) Include accounting entries e.g. depreciation. Show Answer Correct Answer: D) Include accounting entries e.g. depreciation. 20. For a profitable company, an increase in the rate of depreciation on a specific project could A) Increase the project's profitability index. B) Increase the project's payback period. C) Decrease the project's net present value. D) Increase the project's internal rate of return. Show Answer Correct Answer: D) Increase the project's internal rate of return. ← PreviousNext →Related QuizzesCorporate Finance QuizzesCapital Budgeting Quiz 1Capital Budgeting Quiz 2Capital Budgeting Quiz 4Capital Budgeting Quiz 5 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books